11 for 2011: Calvert Advocacy Highlights for the Year
As we enter the New Year, let us look back at issues of importance to Calvert investors where we believe we made an impact in 2011. All of these issues reflect Calvert’s longstanding shareholder advocacy and public policy priorities as we use the power of investment to strengthen corporate responsibility and advance sustainability. We are determined to continue to make progress in these and other areas in 2012 with the future of our country and planet at stake.
Sustaining Sustainability...the Tipping Point?
Calvert has long been a leader in what we call sustainable and responsible investment—integrating our analysis of the environmental, social and governance (ESG) risks and opportunities with investment decisions. The year 2011 saw new indications that the momentum is finally moving in our direction as global sustainability challenges are increasingly seen as posing investment-related risks and opportunities. Calvert co-hosted a major conference in Washington DC in October convened by the United Nations Environment Programme Finance Initiative (UNEP-FI) that attracted over 500 attendees from the investment, banking, and insurance industries. Organized around the theme "The Tipping Point, Sustained Sustainability in the Next Economy", the conference addressed the linkages between achieving global sustainability and market stability as the cornerstone of the "next economy".
Major speakers included former UK Prime Minister Gordon Brown; and Mary Robinson, former UN High Commissioner for Human Rights and former President of Ireland. Calvert's CEO (and UNEP-FI Co-Chair), Barbara Krumsiek, spoke at the opening plenary session and Calvert experts spoke on panels addressing human rights, water and ecosystem services. Ironically, the event took place across Pennsylvania Avenue from an "occupy" protest encampment as speakers emphasized the urgent imperative of building public trust in the global financial system by creating jobs, stabilizing economies and addressing environmental challenges. While the conference foresaw a "tipping point" toward more mainstream acceptance of sustainable investment, uncertainty surrounding the U.S. elections and the Eurozone crisis may put that tipping point on hold for 2012.
Keep on Truckin' Towards Energy Efficiency, Low Carbon Fuels and Clean Air
2011 was not exactly a banner year for progress towards curbing climate change through bold public policy initiatives—as support for a cap-and-trade system collapsed in the Congress in 2010 and UN climate talks at Durban made only modest progress against the backdrop of modest expectations. While Calvert and other investors working through the Investor Network for Climate Risk (INCR) have been realistic in our assessment of recent progress, we have also remained determined to drive—and when necessary defend—progress where and when we can. In 2011, Calvert engaged in the policy realm in support of three regulatory initiatives where there was progress toward a cleaner and more efficient use of energy resources. In meetings with the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration, Calvert made the investment case for raising CAFE (Corporate Average Fuel Economy) standards, a regulatory action that could improve the Detroit 3's profit and growth opportunities by 2020.
The Obama Administration announced an agreement to move forward with new fuel economy standards in November of 2011. Through public testimony in Maryland and Massachusetts, a newspaper opinion piece, and a radio interview, Calvert has been making the argument for a Clean Fuel Standard in the Northeast and Mid-Atlantic states. A Clean Fuel Standard requires that transportation fuel providers gradually reduce the greenhouse gas emissions of their products by mixing low carbon fuels into their supply. Lower carbon fuels could be bio-fuels made from sugar cane, grass or even algae; or from natural gas. In order to meet the standard, fuel providers could also buy credits from electric utilities that supply low carbon electricity to electric vehicles.
Additionally, Calvert coordinated an investor letter to Congressional leaders in support of Clean Air Act rules under development at the EPA. The letter urged Senate leaders to support timely implementation of rules that would address cross-state air pollution and emissions of mercury and air toxics. Such rules will help modernize and improve the efficiency of our electricity-generating utilities by retrofitting outdated, high-polluting power plants, while creating well-paid construction, installation, engineering, and manufacturing jobs. On December 21, the EPA announced the Mercury and Air Toxics rule, a victory for both public health and economic recovery—and a cleaner New Year.
It's Not Just Climate Change Mitigation... It's Also Adaptation
If 2011 was a year of mixed results—disappointments and progress alike—for climate change mitigation, it was also a year of promise and hope for the closely related emerging agenda of climate change adaptation. Calvert believes that climate change mitigation and adaptation must move forward together; and that adaptation is way for companies and investors to grasp the opportunities as well as risks at stake in climate change. Competitive companies must not only commit to mitigating climate change by reducing their carbon footprint, but also must also strategically plan for and adapt to climate change impacts. The physical impacts of climate change pose a significant threat to companies' operations and supply chains, while also generating growth opportunities for businesses in new and existing markets as the demand for certain products and services increases.
Calvert is a founding member of the Partnership for Resilience and Environmental Preparedness (PREP), a coalition of partners including Entergy, Green Mountain Coffee Roasters, Levi Strauss and Company, Limited Brands, Starbucks, Swiss Re, and Oxfam America, which was formed to address climate change impacts on businesses and communities. PREP is also actively encouraging policy makers to make sound policy decisions that encourage resilience-building and preparation for climate change both at home and abroad. So to paraphrase a famous phrase from the 1992 presidential campaign twenty years later, 2012 is the year that we must act on the proposition that it's not just climate change mitigation, it's also adaptation.
Food and Agriculture...Setting the Table to Be Fair and Sustainable
While global by definition, sustainability is not only local but personal; it starts with how we put food on our tables. In 2011, Calvert focused on climate change risks, food security and farm worker rights across the supply chains of many major food and beverage corporations. Calvert began work with Oxfam America, major farmworker unions and consumer groups to develop a new certification system for on-farm sustainability of fruits and vegetables grown in the U.S., taking into account farm worker welfare, pesticide use reduction, and product safety. The initiative is in the pilot phase, while Calvert and other organizers are encouraging several major food companies to join.
We are also working to put climate change on the table for American food companies, as we believe that they face risks—and share responsibility—related to climate change. Many food crops are already starting to show vulnerability to climate change and variable rainfall. Central and South American coffee, in particular, is predicted to decline due to disease and stress caused by higher temperature and extreme rainfall. Calvert and Trillium Asset Management filed a shareholder resolution with the J.M. Smucker Company, calling for disclosure on the climate-related risks to the Folgers Coffee and other coffee brands, which represent 40% of the company's revenue. The proposal received over 30% votes in favor. Calvert also had productive engagements with Yum! Brands and Dr. Pepper/Snapple on their management of climate risk.
Making Botox for Humans...the Humane Way without Animals
Animal welfare has been among the touchstones for Calvert investors for years. Progress has been slow—fought out company-by-company, animal-by-animal, and issue-by-issue. We made such progress in 2011. The Food and Drug Administration approved a new procedure that avoids animals in testing batches of Botox© products, thanks in large part to work by The Humane Society of the United States (HSUS), Calvert, and Allergan Inc. The HSUS and Calvert had filed shareholder resolutions with Allergan for three years through 2010, asking the company to replace animals with alternative methods. From the investor perspective, Calvert had concerns about the reputational risk of continued use of a notoriously painful animal test for a product that is widely used for cosmetic purposes off-label. Allergan has disclosed that the new test is cost-neutral and that it has enjoyed strong internal support from staff for the new test. Calvert will watch to make sure that it works—and work to make it a model for others.
Corporate Board Elections...Not Just for the 1%
When a candidate for a corporate board can win a seat with a single vote (not even 1%) shareholder democracy still sounds like an oxymoron. Unfortunately, too many corporate board elections do not meet commonly accepted standards for U.S. elections, which considerably weaken the shareholder's ability to ensure accountability. The accountability of management and boards of directors to shareholders is a critical element of strong corporate governance—and the shareholder's role in electing a board of directors is a fundamental part of this accountability. Yet progress is being made towards making corporate governance less of a closed oligarchy and more of an open democracy.
During the 2011 proxy season, Calvert filed four shareholder proposals calling for majority voting. Three companies, Plains Exploration and Production Company, Global Payments, and Agco, agreed to implement the requested changes, so Calvert withdrew those resolutions. Calvert's resolution at Hansen Natural spurred the company to make changes that improved their director election process; however, these changes were insufficient in Calvert's view. We kept the resolution on the ballot and 48% of shareholders supported Calvert's proposal. While Americans focus on making their choices in the 2012 election year, Calvert will keep focusing on bringing democratic elections to Corporate America.
Diversity and Gender Equity in Corporate America...Progress and Struggle
The quest to achieve greater diversity and gender equity across Corporate America never ends. Whenever progress is made, we are reminded of the progress yet to happen and the struggle ahead. In 2011, IBM and HP joined Dupont, Pepsi, and Xerox as major U.S. companies with women CEOs—yet women still make up only 3.4% of CEO positions within the Fortune 500. But progress must accelerate and at Calvert we are doing our part in bringing the business case for diversity to major U.S. corporations. To date, we have filed over 60 shareholder proposals with companies such as Urban Outfitters, Apple, and Netflix asking them to commit to a diverse and inclusive boardroom. The San Francisco Gender Equality Initiative and the UN Women's Empowerment Principles—both adapted from the Calvert Women's Principles first launched in 2005—continued to make strides. The San Francisco initiative made its interactive website fully operational, providing companies with a tool to benchmark their progress on gender equality. Over 250 companies from all over the world have now signed on to a CEO Statement of Support for the UN initiative. The Calvert Women's Principles were cited by the UN Secretary General in March and our workplace diversity efforts were honored by the New York Women's Agenda in December.
Dodd-Frank...From Wall Street to the World
Two sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 of global significance beyond the U.S. were the focus of a complicated SEC rule-making process in 2011. Both sections—1502 and 1504—require companies registered on U.S. exchanges to make unprecedented disclosures regarding particular risks to investors which have not previously been the focus of such regulation. Section 1502 requires disclosure by companies that use gold, tin, tantalum, and tungsten in their products to determine whether such metals originate from particular mines in the Democratic Republic of Congo (DRC) or adjoining countries that have been used as "conflict minerals" to pay for weapons that have fueled the world's bloodiest conflict since the Second World War.
An early supporter of the legislation, Calvert has engaged in the SEC rule-making process as part of a multi-stakeholder coalition of investors, human rights NGOs, and major multinational corporations that has addressed a series of technical issues while urging swift completion and implementation of the law. In addition to submitting a series of letters and comments, Calvert brought the investor perspective at an October 2011 SEC roundtable convened to address the complex and controversial issues at stake in the conflict minerals rule.
Dodd-Frank Section 1504 requires oil, gas and mining companies to disclosure payments they make to the governments of countries where they operate around the world. As Calvert argued in a paper widely circulated on Capitol Hill in 2010 and subsequently incorporated in the legislation, disclosure of such payments provide investors with material information related to a number of companies operating in countries where the lack of transparency has contributed to corruption, poor governance and conflict.
Calvert continued to take the lead among investors by making the case for a strong, comprehensive rule to implement Section 1504 directly to SEC commissioners and staff through a series of comments and meetings. At the same time, Calvert also made the case through letters, meetings and public speeches on both sides of the Atlantic for other jurisdictions to require similar disclosure of extractive revenue payments, focusing in particular on the UK and the EU, with progress made on both fronts. Final rules on both sections 1502 and 1504 are expected early in 2012.
Human Rights Gets Its Due...Diligence
The Guiding Principles for the Implementation of the United Nations Protect, Respect and Remedy Framework represents the culmination of Professor John Ruggie's mandate to define the relationship between business and human rights, making operational the "protect, respect and remedy" framework set forth in 2008. The unanimous endorsement of the Guiding Principles by the UN Human Rights Council in June 2011 validates the proposition that companies in virtually every industry faces human rights-related risks and responsibilities after years of resistance by many in the business community. While viewing the Guiding Principles as a floor—not a ceiling—for those responsibilities, and while noting deficiencies in the Guiding Principles related to the rights of Indigenous Peoples' in particular, Calvert nonetheless sees particular merit for companies in the due diligence framework that forms the heart of the document.
Working with other investors through the UN Principles for Responsible Investment (PRI) and the Interfaith Center for Corporate Responsibility (ICCR), Calvert helped to mobilize investors on an international basis to call on companies to embrace the due diligence framework and in turn to use it themselves to assess human rights-related risk across their portfolios. The extent to which the Guiding Principles come to life will be increasingly apparent in 2012, depending on commitments on the part of companies to apply them and the willingness of investors along with international human rights groups, governments, and communities around the world to make their expectations clear. Calvert will make clear that human rights must get their due...diligence.
California not Dreaming...Curtail Slavery and Trafficking in Global Supply Chains
For over a dozen years, more companies in more industries—beginning with footwear and apparel, and extending to consumer electronics, food, agriculture, and beyond—have faced varying degrees of scrutiny over labor and human rights conditions and practices in their increasingly global supply chains. More recently, focus has sharpened on the continuing, and in some places growing, phenomenon of modern slavery and human trafficking—and its disturbing manifestations across geographies and industries. Not surprisingly, California has taken the lead in legislating accountability for companies to curtail these practices from their supply chains—just as it has in other areas of public policy and sustainability such as its own air quality standards that have compelled entire industries to reduce their emissions.
Ahead of the California Transparency in Supply Chains Act (SB 657) taking effect on January 1, 2012, Calvert joined the Interfaith Center on Corporate Responsibility (ICCR), and Christian Brothers Investments Services (CBIS) to write a guide to help companies comply with the act: "Effective Supply Chain Accountability: Investor Guidance on Implementation of The California Transparency in Supply Chains Law and Beyond." This first legislation of its kind in the U.S. requires manufacturers and retailers doing business in California to disclose on their corporate websites their efforts to eliminate slavery and human trafficking from their direct supply chains. The requirements apply to companies that conduct business in California and have global gross receipts exceeding $100 million. The new law is expected to affect more than 3,000 companies worldwide and it will further raise expectations that companies in all industries will be held accountable for addressing human rights risks across their supply chains.
Freedom of Expression and Privacy on the Internet...Driving Rules of the Road
Some see the Internet as a mechanism for unprecedented communication and freedom in an irreversibly interconnected world. Others see it compromised by censorship and invasions of privacy on the part of authoritarian and democratic governments alike with unaccountable companies as their willing or unwitting accomplices. An emerging consensus sees the Internet as a force for both good and evil. Calvert understands the risks as well as opportunities that investment in information and communication technology (ICT) sector companies presents especially when a company undermines the freedom of expression or right to privacy of its users as a condition of operating in certain markets.
That is why Calvert joined other investors, human rights advocacy organizations, and academic experts beginning in 2006 to develop and later launch in 2008 the multi-stakeholder Global Network Initiative (GNI) with a set of principles and implementation guidelines as its centerpiece—and with Calvert represented on its Board. But it was only in 2011 that GNI began to demonstrate its relevance as an operational framework and policy platform in situations from the shutdown of mobile communications networks in Egypt and even the threatened one in Britain. In 2011, GNI expanded from its original three signatory companies to add two others—Websense and Evoca—and a number of other North American and European internet service, telecom, and hardware sector companies are among those considering membership. But in 2012, GNI's credibility will be tested when the results of the second phase assessment process are released and initial conclusions can be drawn as to the extent of member company implementation of the GNI principles.
GNI's viability as a global standard will also be tested in 2012 as a number of companies join the initiative either as members or observers. Calvert will continue to push hard to ensure the credibility of GNI's assessment process and to make the case that other ICT sector companies—especially those which have invented and extended the Internet as a force for freedom—are at the same time willing to address their human rights risks and responsibilities.
As of 11/30/11, accounts managed by Calvert Investment Management, Inc. held securities issued by Agro Corp, Allergan Inc, Apple Inc, Dr Pepper Snapple Group, Entergy Corp, Global Payments Inc, Green Mountain Coffee Roaster, Hewlett Packard Co, IBM, J.M. Smucker Co, Limited Brands Inc, Netflix Inc, Pepsico Inc, Plains Exploration and Production, Starbucks Corp. Swiss Re AG, Urban Outfitters Inc, Websense Inc, Xerox Corporation, and Yum! Brands Inc. Calvert may or may not still invest in, and is not recommending any action on any of these companies.